Will Mozambique end up like Nigeria or Norway?

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The 2011 discovery of a major off-shore gas field, combined with extensive coal reserves inland, has prompted some to suggest that Mozambique, one of the world's poorest countries, has hit the jackpot.

The gas is thought to be worth an estimated $350bn (£233bn) while projections predict that from 2015 the country could produce 100 million tonnes a year, putting it just outside the top 10 producers in the world.

It is an unfair comparison in many ways - for example, with an estimated population of 162 million, Africa's most populous nation dwarfs Europe's northernmost nation, which has just five million inhabitants.

“Start Quote

A small elite associated with the ruling party and with strong business interests, dominates the economy”

End QuoteSebastien MarlierBusiness analyst

The challenges are immense. To properly exploit the resources underground, Mozambique needs a solid infrastructure, expertise and above all, a competent, honest government.

"Corruption has become a major concern in Mozambique," says Mr Marlier.

"A small elite associated with the ruling party and with strong business interests, dominates the economy."

Concerns focus on the way mining and exploration licences are agreed between the government and multinational companies that have been queuing up to buy into the boom.

The licences are effectively a right to exploit a find and, once bought, can be traded.

Depending on market conditions, their price can rise dramatically, or indeed fall. Early buyers stand to make a profit if the finds turn out to be more valuable than first thought.

Furthermore, many multinational firms operating in Mozambique secured tax exemptions for up to 15 years.

When they bought the licences, in some cases more than a decade ago, the country was considered to be such a high-risk prospect that strong incentives were needed to attract investment.

If capital gains taxes had been paid on the 2011 sale of the Benga coal mine by Riverdale to Rio Tinto for $3.8bn (£2.5bn) Mozambique would have netted hundreds of millions of dollars.

'Nothing to hide'

Adriano Nuvunga, director of a Maputo-based anti-corruption organisation, the Centre for Public Integrity, says there is a basic lack of transparency about these dealings.

He worries that his countrymen may not be getting the share of wealth they deserve.

"There isn't a system to find out whether the government has done good business," he says.

Mozambique's railways are slowly recovering from a civil war that ended in 1992

Mr Nuvunga's concerns - which are shared by many - are dismissed by Arsenio Mabote, head of the National Petroleum Institute (NPI), a government agency which promotes and co-ordinates exploration and production activities.

"Those who have been involved in Mozambique know the process is very transparent," he says pointing out that all the necessary legal and regulatory frameworks are there for those who want to invest in the sector.

"We have a very transparent system," he insists. "The environment in Mozambique is there for companies to invest without fearing that there is corruption.

"You can find documents and model contracts that we negotiate on our website. We have nothing to hide."

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We are also improving the universities here so that they can teach petroleum and mining related skills”

End QuoteArsenio MaboteNational Petroleum Institute

Things are changing however. A new tax law passed last year means any petroleum assets sold by foreign companies will be subject to a 32% capital gains tax.

Another headache is Mozambique's ailing train network vital for transporting valuable coal from Tete, the centre of the coal mining industry, to port.

Flooding damage earlier this year knocked out stretches of the train line, which led to coal piling up for weeks.

Some mines stopped production altogether until the backlog was cleared.

Three coal mining companies are now building or proposing to construct entirely new railways to export their coal.

However, it is not clear if the lines will be open to all or if Mozambique will end up with three competing railway lines.

To compound these challenges, questions remain over whether mineral money will be successfully channelled into wider economic development.

Poverty reduction initiatives and agricultural plans have been mooted by Mozambique's government.

Multinational crutch

Mr Mabote, of the NPI, says long-term plans are in place to create jobs and redistribute wealth.

He says students are being sent to Malaysia, Norway and other parts of Europe for studies.

"We are also improving the universities here so that they can teach petroleum and mining related skills," he adds, although he estimates it could be seven years before the fruits of these efforts are realised.

In the meantime, he says the government is working on projects that will eventually have a "social and economic impact".

Nigeria and Norway provide a glimpse of two alternative futures that differ starkly.

As a developing nation lacking the wealth that enabled Norway to make the most of its resources without outside help, Mozambique has started on path similar to that trodden by Nigeria.

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